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CBO Releases Two Analyses of the Senate’s Immigration Legislation

Posted by Doug Elmendorf on

June 18, 2013

The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744) would revise laws governing immigration and the enforcement of those laws, allowing for a significant increase in the number of noncitizens who could lawfully enter the United States on both a permanent and temporary basis. Additionally, the bill would create a process for many individuals who are present in the country now on an unauthorized basis to gain legal status, subject to requirements specified in the bill. The bill also would directly appropriate funds for tightening border security and enforcing immigration laws, and would authorize future appropriations for those purposes.

Based on joint work with the staff of the Joint Committee on Taxation (JCT), CBO released two analyses related to the immigration legislation that was approved by the Senate Judiciary Committee:

A cost estimate providing projections of the bill’s effects on federal spending, revenues, and the deficit.

A report on the economic impact of S. 744, analyzing the bill’s effects on economic output, the size of the labor force, employment, wages, capital investment, interest rates, and productivity.

How Would the Legislation Affect the U.S. Population?

CBO estimates that, by 2023, enacting S. 744 would lead to a net increase of 10.4 million in the number of people residing in the United States, compared with the number projected under current law. That increase would grow to about 16 million by 2033. CBO also estimates that about 8 million unauthorized residents would initially gain legal status under the bill, but that change in status would not affect the size of the U.S. population.

How Would the Legislation Affect the Federal Budget from 2014 Through 2023?

CBO and JCT estimate that enacting S. 744 would generate changes in direct spending and revenues that would decrease federal budget deficits by $197 billion over the 2014–2023 period. CBO also estimates that implementing the legislation would result in net discretionary costs of $22 billion over the 2014–2023 period, assuming appropriation of the amounts authorized or otherwise needed to implement the legislation. Combining those figures would lead to a net savings of about $175 billion over the 2014–2023 period from enacting S. 744. However, the net impact of the bill on federal deficits would depend on future actions by lawmakers, who could choose to appropriate more or less than the amounts estimated by CBO. In addition, the total amount of discretionary funding is currently capped (through 2021) by the Budget Control Act of 2011; extra funding for the purposes of this legislation might lead to lower funding for other purposes.

Following the long-standing convention of not incorporating macroeconomic effects in cost estimates—a practice that has been followed in the Congressional budget process since it was established in 1974—cost estimates produced by CBO and JCT typically reflect the assumption that macroeconomic variables such as gross domestic product (GDP) and employment remain fixed at the values they are projected to reach under current law. However, because S. 744 would significantly increase the size of the U.S. labor force, CBO and JCT relaxed that assumption by incorporating in this cost estimate their projections of the direct effects of the bill on the U.S. population, employment, and taxable compensation.

The bill also would have a broader set of effects on output and income that are not reflected in the cost estimate described above. Those additional economic effects include changes in the productivity of labor and capital, the income earned by capital, the rate of return on capital (and therefore the interest rate on government debt), and the differences in wages for workers with different skills. Those effects and their estimated consequences for the federal budget are described in a report, The Economic Impact of S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act, that accompanies the cost estimate.

According to CBO’s central estimates (within a range that reflects the uncertainty about two key economic relationships in CBO’s analysis), the economic impacts not included in the cost estimate would have no further net effect on budget deficits over the 2014–2023 period.

How Would the Legislation Affect the Federal Budget for 2024 Through 2033?

CBO and JCT generally do not provide cost estimates beyond the standard 10-year projection period. However, S. 744 would cause a significant number of people to become eligible for certain federal benefits in the decade following 2023, so CBO and JCT have extended their estimate of the effects of this legislation for another decade.

The additional amount of federal direct spending stemming from enactment of S. 744 would grow after 2023 as more people became eligible for federal benefits as a result of the bill. The additional amount of federal revenues owing to the legislation also would increase after 2023 as the labor force continued to increase. On balance, CBO and JCT estimate that those changes in direct spending and revenues would decrease federal budget deficits by about $700 billion (or 0.2 percent of total output) over the 2024–2033 period. In addition, the legislation would have a net discretionary cost of $20 billion to $25 billion over the 2024–2033 period, assuming appropriation of the necessary amounts. According to CBO’s central estimates (within a range that reflects the uncertainty about two key economic relationships in CBO’s analysis), the economic impacts not included in the cost estimate would further reduce deficits (relative to the effects reported in the cost estimate) by about $300 billion over the 2024–2033 period.

How Would the Legislation Affect the Economy?

S. 744 would boost economic output. Taking account of all economic effects (including those reflected in the cost estimate), the bill would increase real (inflation-adjusted) GDP relative to the amount CBO projects under current law by 3.3 percent in 2023 and by 5.4 percent in 2033, according to CBO’s central estimates. Compared with GDP, gross national product (GNP) per capita accounts for the effect on incomes of international capital flows and adjusts for the number of people in the country. Relative to what would occur under current law, S. 744 would lower per capita GNP by 0.7 percent in 2023 and raise it by 0.2 percent in 2033, according to CBO’s central estimates.

Per capita GNP would be less than 1 percent lower than under current law through 2031 because the increase in the population would be greater, proportionately, than the increase in output; after 2031, however, the opposite would be true. CBO’s central estimates also show that average wages for the entire labor force would be 0.1 percent lower in 2023 and 0.5 percent higher in 2033 under the legislation than under current law. Average wages would be slightly lower than under current law through 2024, primarily because the amount of capital available to workers would not increase as rapidly as the number of workers and because the new workers would be less skilled and have lower wages, on average, than the labor force under current law. However, the rate of return on capital would be higher under the legislation than under current law throughout the next two decades.

The estimated reductions in average wages and per capita GNP for much of the next two decades do not necessarily imply that current U.S. residents would be worse off, on average, under the legislation than they would be under current law. Both of those figures represent differences between the averages for all U.S. residents under the legislation—including both the people who would be residents under current law and the additional people who would come to the country under the legislation—and the averages under current law for people who would be residents in the absence of the legislation. As noted, the additional people who would become residents under the legislation would earn lower wages, on average, than other residents, which would pull down the average wage and per capita GNP; at the same time, the income earned by capital would increase. CBO has not analyzed the full economic effects of the legislation separately for the incomes of people who would be U.S. residents under current law.

In sum, relative to current law, enacting S. 744 would:

Increase the size of the labor force and employment,

Increase average wages in 2025 and later years (but decrease them before that),